The phrase beating swords into plowshares can be found in a biblical passage referencing the transition from war to peace. It is a fitting admonition for the reverse mortgage industry as we prepare for what we hope will be the finishing touches on the restructuring of the Home Equity Conversion Mortgage program. In other words now is the time for us to cease fighting change and prepare for the future.
Reality can be an unpleasant wakeup call and economic realities often are harsher. There was notable resistance and confusion as HUD took numerous measures to shore up the economic weak points of the HECM. Principal limit reductions, insurance premium increases and first year utilization restrictions, all which in retrospect foreshadowed a fully underwritten loan. FHA’s mutual mortgage insurance fund suffered substantial damage due to the housing collapse undermining the foundational assumptions upon which the HECM program was built. The broken bones may have been set and casted but the limp remains as we step forward. Time does heal all wounds yet it will be several years before we see the economic valuation of the HECM portion of the MMI fund fully recover. Until then we live with the reality of the financial assessment.
Making the crooked paths straight:
Navigating the fact-finding and underwriting minutiae of the financial assessment will pale in comparison to the importance of forging a new path in reaching potential borrowers. There is a large contingent of our industry who have worked in the reverse mortgage space for several years who still view the HECM as a social program. In other words, some see our mission to help all seniors regardless of their financial assets, ability to pay or future liabilities. Unfortunately this social justice view of the reverse mortgage is not financially viable and will lead such individuals down a very treacherous road of frustration and unmet expectations. To truly position ourselves for success we must begin to look away from the easy needs-based sale to those who may not see the immediate need but would benefit from using the HECM as part of their overall retirement strategy.
Finding a middle ground
It may be tempting to believe that only those with substantial savings and higher home values will qualify in the wake of the assessment. In fact, nothing could be further from the truth. Those with a history of poor credit management, late property charge payments and a persistent lack of cash flow will be the cohort most effected. Which brings us to the average middle-class homeowner. With senior home equity reaching new heights there remains a viable, qualified and motivated market who may have modest means but sufficient equity making them eligible. Even those on a fixed income of social security could easily meet assessment guidelines if not saddled by other debts or a history of poor money management. Then there’s the ‘mass affluent’: those with investible assets between $100,000 and $1 million dollars. Those with substantial retirement savings are often at risk of outliving their money; if you’re doubtful just ask your local financial professional.
Now is the time for us to collectively put down our swords and equip ourselves for the remaining opportunity ahead. Certainly we will find fewer needs-based borrowers desperate for a HECM that qualify to easily pluck off the tree of older homeowners but there is a field that still needs to be worked to reach what has largely remained untouched ground.
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Shannon Hicks serves as the president of Reverse Focus, Inc supporting the training and technology needs of reverse mortgage (HECM) professionals nationwide. Comments can be made in this post or sent directly to Shannon@ReverseFocus.com